Stock market remains calm
after Hurricane Katrina

NEW YORK » In the aftermath of Hurricane Katrina, which left uncounted people dead, possibly 1 million out of work and estimates of as much as $50 billion in property damaged or destroyed, the stock market shrugged.

Will investors be so sanguine about Katrina months from now?

Wall Street is divided about whether the hurricane signals the beginning of an economic downturn, but, for the moment, the optimists are in the majority. The major indexes remain nearly flat for the year, just as they had before the hurricane.

That's partly because, in the Alice in Wonderland world of stocks, disaster can prove profitable. The economy may lose steam for one quarter, the optimists say, but then the Gulf Coast will rebuild and the economy will carry on as before.

"Sometimes fixing the broken window does create real economic activity," wrote Prudential Securities chief investment strategist Edward Keon, noting that it could be a use for significant amounts of money "sitting relatively idle in cash accounts."

Standard & Poor's Economics said Katrina has doubled the likelihood of a recession from less than 12 percent to 25 percent. "What would drive it is $100 (a barrel) oil prices," said Beth Ann Bovino, a senior economist at S&P. "While the possibility has risen, we're pretty confident of the health of the U.S. economy."

The fact is that some of Wall Street's biggest moneymakers may remain unscathed. Over one-third of the S&P 500's operating earnings come from the financial and energy sectors, "two sectors that should be able to sustain the situation," wrote Howard Silverblatt, S&P's equity market analyst.

Even in sectors of the economy that might seem vulnerable, the hurricane may not be all bad, some analysts say.

Bear Stearns hotel analyst Joseph R. Greff, wrote, "We believe the impact of lost demand from the leisure and business travel segments will be somewhat alleviated initially from demand from emergency, rescue and insurance agents and subsequently from developers, construction workers and displaced residents."

Stock in Marriott International Inc. and Hilton Hotels Corp. dropped this past week. "We view the recent sell off as a buying opportunity," Greff wrote yesterday.

Estimates of damages covered by insurance range as high as $30 billion. "To put it in perspective, last summer's four hurricanes cost insurers about $23 billion," wrote Zacks Investment Research insurance analyst Ann Northrop. But analysts agree that the most affected insurers will likely be able to cover their losses.

What there's no consensus on is whether the broader economy can weather the shock of Katrina.

"A meaningful economic slowdown appears even more in the cards in light of Katrina," wrote Liz Ann Sonders, chief investment strategist at Charles Schwab, in a note to clients Thursday. She said high oil prices, lower retail spending, declining consumer confidence and a cooler housing market could contribute to a decline.